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Trends in IT Value
INTRODUCTION
IT executives throughout the world have been searching for The Standish Group defines trends as the current
SPECIAL RE POR T
that elusive Holy Grail, known as the value of IT. However, like general direction of a technology, methodology,
beauty, the value of IT is in the eye of the beholder. Also like business practice, and/or technique. It is a barometer
beauty, the perception of value tends to fade over time without of the overall activity in relationship to other
proper maintenance. In many corners of the IT environment activities. It is not a compilation of all IT activities,
the value of IT has increased exponentially, and continues to but the ones with the highest priority. Throughout this
bring users and stakeholders greater and greater benefits. The paper and other Standish trends research notes you
Trends in IT Value report is not designed to quantify or even will see the word “driver.” A driver, the way we define
identify the value of IT, but to show the trends and drivers that it, could be a government mandate, a market-driven
have been steadily increasing the value of IT over time. event, a business fad, a new discovery, or a vendor-led
initiative.
We have identified the 10 most important drivers of IT value;
each driver is made up of three elements. The first driver is The Trends in IT Value report is based on DARTS
lowering the infrastructure cost, which comprises: cheaper (Demand Assessment Requirements Tracking
basic cost, data center consolidation, and eco-computing. The Studies), the CHAOS project (private acronym),
second driver, increasing application functionality or features, CENTS (Comparative Economic Normalization
is made up of cost, optimization, and return on investment. Technology Study), and other research instruments.
The third driver, reducing the cost of downtime, encompasses All research participants must satisfy a qualification
cost per minute, cost per event, and cost per transaction for process and join our Standish User Research Forum
a given application or environment. Maintaining suitable (SURF). All data and information in this report should
risk, the fourth driver, consists of fewer moving parts, be considered Standish opinion and the reader bears
incremental adoption, and a vertical stack. And the fifth all risk in the use of this opinion. For a more in-depth
driver, commoditization, includes hardware, applications, and view of many of the drivers in this report, please
services. see our trends reports on readiness, open source,
optimization, SOA, and service delivery, plus the
The sixth driver for IT value is higher readiness, and CHAOS Report.
this includes central control, active-active processing,
and application quality assurance. Seventh, the project
management leadership driver, comprises optimization,
iterative processes, and best practices. The three elements DRIVERS FOR IT VALUE
for the eighth driver, service-oriented architecture (SOA), are
increased business agility, business process management, and Lowering the Infrastructure Cost. . . . . . . . . . . 2
investment reuse. The ninth driver, service delivery, includes Increasing Application Features. . . . . . . . . . . . 3
choice, cost, and time. Finally, the vendor consolidation driver
is made up of bundle buying, open source, and single-source Reducing the Cost of Downtime. . . . . . . . . . . . 4
support. These 10 drivers and their associated elements are Maintaining Suitable Risk . . . . . . . . . . . . . . . . 5
increasing the value of IT.
Commoditization. . . . . . . . . . . . . . . . . . . . . . . 6
STANDISH DEFINITION
Higher Readiness . . . . . . . . . . . . . . . . . . . . . . 7
“Value” is real or perceived worth, usefulness, or
importance of a given activity or service. One way to look Project Management Leadership . . . . . . . . . . . 8
at information technology services value is to consider SOA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
the cost of the IT service versus the cost of providing
the service manually. Another way to look at IT value Service Delivery . . . . . . . . . . . . . . . . . . . . . . 10
is to consider the benefits of the service provided that Vendor Consolidation. . . . . . . . . . . . . . . . . . . 11
would be impossible to accomplish without IT.
Copyright © 2008 The Trends in IT Value report is protected by copyright and is the sole property of The Standish Group International, Incorporated. It may not under any circumstances be
retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved. 1
Driver 1: Lowering the Infrastructure Cost
The Standish Group estimates that the average stated electrical output of computer systems, cooling and
yearly goal to optimize IT infrastructure and facilities heating, lighting, etc., for the data center as well as
cost reductions is 10%. In order to accomplish this goal an other computing equipment and peripherals throughout
organization needs to consider the current cost structure the company. Reducing cost may include consolidating
and examine ways to improve each and every category. applications to eliminate equipment, switching to more
The Standish Group TCO model breaks costs into three efficient equipment, or managing shutdown and start-up
segments or elements: basic cost, application cost, and cost operations. Most organizations are just at the beginning
of downtime. Lowering the infrastructure cost driver for IT stages of green programs to reduce cost.
SPECIAL REPORT: Trends in IT Value
capacity for important applications as well as to lower cost. Application Maintenance 1,959 1,719 12%
Organizations across the globe have cut millions of dollars Other Cost 395 450 -14%
from their IT budgets by closing and consolidating data Total Operating Cost 8,349 5,968 29%
centers, reducing servers, and centrally controlling opera- Cost of Downtime 55 39 29%
tions. Blades and server complexes have reduced space re- Cost, Including Downtime 8,404 6,007 29%
quirements while improving disaster recovery capabilities. The above table shows the breakdown of the annual total cost
From our research almost two-thirds of organizations use of ownership for three banking applications: ATM, POS, and
outside or industry benchmarks to optimize their service- EFT doing 200 transactions per second at peak and 80 TPS off-
peak. In this table we show basic cost, application cost, and the
level agreements (SLAs) and cost structure.
cost of downtime of both systems, complete with the necessary
software to operate typical applications. The cost of hardware
Eco-computing is about making environmentally
and software is annual, based on a three-year operating lease.
responsible decisions when it comes to the purchase, use, The data is from the VirtualADVISOR cost estimating system.
and disposal of electronic equipment. Cost in reference to Picking the right system for the right application can increase
green computing is typically gathered by measuring the the value of IT by lowering overall costs.
Copyright © 2008 The Trends in IT Value report is protected by copyright and is the sole property of The Standish Group International, Incorporated. It may not under any
circumstances be retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved.
2
Driver 2: Increasing Application Features
IT organizations are always looking for ways to save retirement. Almost 90% of organizations
or free up money to improve their value. Computer can justify new funds or divert funds for
hardware has and continues to respond to this challenge an application that shows a good ROI.
by offering higher and higher performing systems at
Standish Definition: “Increasing application
Copyright © 2008 The Trends in IT Value report is protected by copyright and is the sole property of The Standish Group International, Incorporated. It may not under any circumstances be
retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved. 3
Driver 3: Reducing the Cost of Downtime
There is only one way to reduce the cost of downtime these three sources we are able to estimate the cost
and that is to reduce downtime. In March 2008 Netflix, a of downtime for a given application, platform, and
consumer service provider that rents DVD movies by mail, environment.
experienced an 18-hour system outage. This outage cost
Standish Definition: “Cost of downtime” is what it
them $3 million in lost movie fees, but that was only the
costs the organization when an outage occurs. These
tip of the iceberg. In addition to lost rental revenue, Netflix
costs include the cost to bring the system back to an
could have permanently lost 1% of their customers, which
operational state. Costs also may include staff cost to
could easily equal another $10 million over the next three
SPECIAL REPORT: Trends in IT Value
Cost per minute: The Standish Group collects data on the COST OF DOWNTIME
cost per minute of downtime by application. We have 50
main applications that we constantly study, and a number Application Name Cost/Minute
of others that come and go. For example, the average
e-commerce application costs $12,000 per minute of Trading (securities) $73,000
downtime, while a trading application is $73,000 per minute. HLR $29,300
From the downtime data we know the minutes of outage for ERP $14,800
a given environment. We just have to multiply the number Order Processing $13,300
of minutes by the cost per minute and we get a ballpark E-Commerce $12,600
cost of downtime. We also have to look at when the outages
Supply Chain $11,500
occur. If they occur at peak time they have a larger impact
EFT $6,200
and are much more expensive than off-peak.
POS $4,700
Cost per event: The Standish Group collects data on the cost ATM $3,600
of downtime by event. We look at many different events over
E-Mail $1,900
the course of a year, such as the number of application bugs,
operator errors, etc. Each event type has an average cost.
The above table shows the average cost of a
For example, operator error has an average cost of $2,000,
minute of downtime by some of the most popular
while an application bug is 25 times the operator error at
applications. These costs are derived from custom-
$50,000 per event. We then multiply the cost of each event
er, survey data, and case data. The cost of a minute
by the number of events in each category and get another
of downtime will vary by production load, peak
look at the cost of downtime. Here we have to also look at
versus off-peak, and other factors.
when the events occur. If they occur at peak time they are
much more expensive than off-peak.
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circumstances be retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved.
4
Driver 4: Maintaining Suitable Risk
Risk is everywhere – throughout the organization. You addition, there is cooperation among a
cannot eliminate it and it might be harmful to minimize it. vendor’s internal product line groups to
The challenge is to maintain a suitable risk that provides fix a problem versus the blame game
the most progress and benefits. In the development of new that can go on when multiple vendors
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retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved. 5
Driver 5: Commoditization
The IT industry’s pattern for standards has remained fairly of this technology is ease of service. IT is no longer held
consistent: Proprietary technologies are developed, de hostage for a day or days waiting for parts or a service
facto standards emerge that lead the way to sanctioned technician.
industry standards, then comes the commoditization of Standish Definition: “Commoditization of IT” is having
products. Commoditization means the price of the product physical products or services of the same type that
and vendor margins are no longer dictated by cost, but are interchangeable, such as server boards or servers
supply and demand. This usually means the pressure is on themselves, and maintenance of those servers. The price
vendors to lower prices as they improve their manufacturing of the commodity is subject to the rules of supply and
SPECIAL REPORT: Trends in IT Value
operations. The commoditization driver for IT value is made demand. This is true of personal computers, printers,
up of three elements: hardware, applications, and services. software products, network products, and many IT
The first personal computer was delivered with 256K of RAM products and services.
and two floppy disk drives for a price of nearly $5,000. No
one could imagine that these devices would revolutionize HP INTEGRITY NONSTOP VS. HP NONSTOP BLADES
IT in business, but they also changed people’s lives around
HP iNS
the world. You can now purchase the components to set Basic Cost ($000) HP-INS16X Blades Difference
up a wireless network router and a PC or laptop with one Hardware Cost 810 420 48%
thousand times the capability for fewer than a thousand Software Cost 314 240 24%
dollars – and the store will give you an HP printer for free! Manpower Cost 547 547 0%
Hardware commoditization has led to organizations just Maintenance 237 168 29%
putting in more hardware to solve performance issues. Other Cost 419 356 15%
Our research shows that fewer than 20% of organizations Total Basic Cost 2,327 1,731 26%
routinely tune their servers for performance. Like PCs, Application Cost ($000)
mainframes that once cost millions of dollars have also been Basic Cost 2,327 1,731 26%
replaced by their little brothers and sisters. Most have been Software Infrastructure 397 301 24%
replaced with significantly more powerful, smaller, and less Database & Systems
1,075 1,075 0%
expensive servers that are filling data centers worldwide and Administration
running many types of applications more efficiently. With Application Maintenance 1,719 1,719 0%
the commoditization of all this hardware, IT organizations Other Cost 450 450 0%
are now deploying applications faster and better than their Total Operating Cost 5,968 5,276 12%
predecessors. Additionally, virtualization has allowed for Cost of Downtime 39 45 -5%
the processing of many applications on one box for more Cost, Including Downtime 6,007 5,321 11%
efficient utilization of these commodity servers.
The above table shows the breakdown of the
While most organizations have given up tuning, we see that annual total cost of ownership for three banking
almost 80% of organizations employ load testing to optimize applications: ATM, POS, and EFT doing about
server availability all or some of the time. System availability 200 transactions per second at peak and 80 of-
has become a key component for measuring the success peak. In this table we show basic cost, application
cost, and the cost of downtime of both systems,
of an IT organization. The days of 92% to 95% availability
complete with the necessary software to operate
have given way to the five nines, or 99.999% availability. these typical applications. The cost of hardware
These new generations of servers driving the numbers up and software is annual, based on a three-year
not only are the components of good quality, but they allow operating lease. The HP Integrity NonStop data is
for the quick swapping of components like hot-swappable from the VirtualADVISOR cost estimating system;
drives, CPU, RAM, etc. This makes these servers even more HP NonStop Blade System data is based on our
estimates. This table clearly shows the dramatic
desirable for IT operations personnel. The acceptance of
effect commodity hardware can have on the value
blade and component modulation makes implementation of an application.
and service extremely efficient and cost effective. The result
Copyright © 2008 The Trends in IT Value report is protected by copyright and is the sole property of The Standish Group International, Incorporated. It may not under any
6 circumstances be retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved.
Driver 6: Higher Readiness
Increasing IT and business readiness is an important An application quality assurance process
component of maintaining the value of IT. IT readiness is essential for the implementation of
goes beyond disaster recovery, high availability, and new applications or upgrading existing
business continuity planning (BCP). Readiness is not applications to ensure readiness.
about planning. Rather, it is being prepared for disasters by Our CENTS data clearly shows that
Copyright © 2008 The Trends in IT Value report is protected by copyright and is the sole property of The Standish Group International, Incorporated. It may not under any circumstances be
retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved. 7
Driver 7: Project Management Leadership
When looking at project management leadership in the the project management environment. We call this a
context of IT value, there are two questions IT management healthcheck. A healthcheck on a project management
needs to answer: Are you working on the right things, ecosystem can spot problem areas well in advance of
and are you doing them in the right way? The project serious consequences.
leadership driver for IT value is made up of three elements:
Standish Definition: “Project management leadership”
optimization, iterative processes, and best practices.
goes well beyond the basic project management skills
As we’ve learned in our workshops, doing the right thing as outlined in PMI’s PMBOK. The starting point for
SPECIAL REPORT: Trends in IT Value
is often very hard – sometimes you keep a project or a project management leadership is qualified project
requirement; sometimes you don’t. Organizations need to management professional (PMPs). Organizations
consider cost, risk, and gain collectively in their decision- that want to be leaders in the profession of project
making. Every project and requirement should have a management invest corporate resources in education,
cost, risk, and gain element. By optimizing on the high training, and research and development. Project
gain, while considering risk for projects and requirements, management leadership advances the profession
an IT organization can maximize value. This is a difficult and creates an environment where such expertise is
problem, especially with a mix of hundreds of projects and recognized, valued, and rewarded. Project management
thousands of requirements. Layer on top all the competing leadership means knowing how to communicate bad
constraints, and it becomes almost impossible. The Standish news along with the good, and having the sense to
Group has had a team of professionals working on a system know when a project should be killed.
to automate this process and aid IT executives and PMs in
the decision-making.
PMI CERTIFICATION
In the early ‘90s Standish Group published the iterative
development process to help answer the question, Are you 40
doing it the right way? Since then, iterative has become the 38%
35
basic foundation of multiple agile types of methodologies,
such as Extreme Programming (XP), Scrum, and Rational 30
29%
Unified Process (RUP). The iterative process has five basic 25
components: baseline, requirements, development, testing,
and deployment. Once you have decided to go forward 20 21%
with a project and you are going to use an agile method, 15 16%
the baseline is the beginning of the process, or step zero.
10 11%
After the baseline has gone through the requirements,
development, testing, and deployment steps, then you 5
circle back to the requirements, development, testing, and 0
deployment steps again and again until the project is done. 2007 2006 2005 2004 2003
Best practices are doing the right things the right way. In
The above chart shows the results from 2003 to 2007
The Standish Group’s CHAOS Knowledge Center (CKC)
when we asked SURF members, “Do you require
we outline the 10 most important lessons for project
your project managers to have PMI certification or
management best practices, with consideration for the 10
the equivalent?” The data shows that the percent of
factors for success. We further break down these factors or
organizations that require their project managers
lessons into 10 points each to create the 100 most important
to have PMI certification or the equivalent is on the
project management leadership best practices. In order to
rise.
help organizations focus on the highest-value opportunity
areas we have developed a benchmark and assessment
product. This product looks at both individual projects and
Copyright © 2008 The Trends in IT Value report is protected by copyright and is the sole property of The Standish Group International, Incorporated. It may not under any
8 circumstances be retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved.
Driver 8: SOA
The implementation of a service-oriented architecture Standish Definition: “SOA” is a business
(SOA) can offer many benefits to organizations as they work strategy to achieve business agility
toward increasing IT value. The SOA driver for IT value through the ability to recognize, precisely
is made up of three elements: increased business agility, document, store, categorize, discover,
business process management, and investment reuse. and make more efficient the organization’s
Copyright © 2008 The Trends in IT Value report is protected by copyright and is the sole property of The Standish Group International, Incorporated. It may not under any circumstances be
retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved. 9
Driver 9: Service Delivery
Service delivery providers in the form of consultants, ing resources that are available to deliver new projects
contractors, software as a service (SaaS) vendors, hosting on anticipated time lines, managing multiple projects,
companies, outsourcing firms, etc., are an integral and etc., takes time and, as CHAOS research tells us, time is
important part of the information technology landscape. the enemy of all projects.
The reasons for their use are many, and vary depending on
the company and situation. Whatever the reasons, though, Standish Definition: “Service delivery” is the use
it’s clear that service delivery companies are not a passing of different delivery methods from various types of
fad, nor are they a passé resource. The market continues organizations bundled into relevant groups for the
SPECIAL REPORT: Trends in IT Value
to prosper, change, and support the enterprises it serves. convenience of customers and stakeholders. These
The service delivery driver for IT value is made up of three methods may be internal services, software as a service
elements: choice, cost, and time. (SaaS), outsourcing, contracting, and consulting.
Services may be performed in a combination of different
When considering a broader use of outside service provid- methods or as a single delivery method.
ers, ask yourself these questions: What are the core services
that our business offers? How can we best focus our inter-
nal IT efforts on these core services? What skill sets do we
have in-house to focus on these core services? What are the COST PER TRANSACTION
risks versus rewards for using external service providers?
What are the political gains and challenges for using exter- IBM Z9
HP NSI
nal providers? How can we best work with external provid- HP NSB
ers? Once you’ve determined the areas that will work best
for using external providers and have outlined the optimal
way to contract with them to gain advantage, the next step
is to determine the type of resources you will need, how
long will you need them, and how you will choose them.
This will obviously vary depending on the project or appli-
cation, so review all of your options and try to determine
where you will see the best value and easiest working re-
lationship.
Copyright © 2008 The Trends in IT Value report is protected by copyright and is the sole property of The Standish Group International, Incorporated. It may not under any
10 circumstances be retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved.
Driver 10: Vendor Consolidation
In the past there were many vendors or suppliers sup- Standish Definition: “Vendor consolidation”
porting IT organizations. Now, the days of having multiple is the reduction in the number of
vendors for different key software products are nearly vendors used and the standardization
over. Previously, IT organizations would purchase special- around a limited number of vendors
ty software such as budget, general ledger, inventory, plan- that provide products and services to the
Copyright © 2008 The Trends in IT Value report is protected by copyright and is the sole property of The Standish Group International, Incorporated. It may not under any circumstances be
retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved. 11
Trends in IT Value
The Standish Group defines trends as the current general direction of a technology, methodology, business practice, and/or
technique. It is a barometer of the overall activity in relationship to other activities. It is not a compilation of all IT activities,
but the ones with the highest priority. Throughout this paper and other Standish trends research notes you will see the
word “driver.” A driver, the way we define it, could be a government mandate, a market-driven event, a business fad, a new
discovery, or a vendor-led initiative.
The Trends in IT Value report is based on DARTS (Demand Assessment Requirements Tracking Studies), the CHAOS project
(private acronym), CENTS (Comparative Economic Normalization Technology Study), and other research instruments. All
research participants must satisfy a qualification process and join our Standish User Research Forum (SURF). All data and
information in this report should be considered Standish opinion and the reader bears all risk in the use of this opinion.
For a more in-depth view of many of the drivers in this report, please see our trends reports on readiness, open source,
optimization, SOA, and service delivery, plus the CHAOS Report.
SUMMARY
The 10 drivers of IT value and their 30 elements in combination are ever-increasing the value of IT. Lowering the
infrastructure cost will continue to be a trend. Organizations will continue offering greater and greater application
functionality. Downtime will continue to decrease as more reliable technology increases availability. Risk will not
be eliminated, but embraced to ensure progress. Commoditization is the river that will continue to flow without
stop. IT organizations will increase their state of readiness through active-active processing and application quality
assurance. Project management leadership will bring in more successful projects on time and on budget, thus
increasing their value. Service-oriented architecture will increase business agility and return on investments.
IT organizations are now avoiding the “Big Bang” approach which historically has resulted in failure and are
applying an “Agile” high-gain, low-risk method. Service delivery will allow for greater freedom of choice, and vendor
consolidation will help the purchasing efforts of IT organizations.
The value of IT is measured in the services it delivers, how it adds to the benefits of the organization, and the
degree of satisfaction of their clients and users. Investments in technology continue to provide superior returns
as they are compared to many other investments. However, not all IT projects and investments are equal and
organizations need to consider the benefits gained against each investment as it is compared to other IT and
organizational investments.
In real estate, many professionals value home and land property, but the true value of any home is what a buyer
will pay for it. In IT, the value is more complex and sometimes hard to quantify. But like the value of education,
we would be lost without it. For 50-plus years IT organizations have been offering their stakeholders greater and
greater services. It seems almost inconceivable that many of these services are only half a century old. We take
for granted wireless Internet access at Starbucks or the telephone call in the middle of the Amazon Jungle. We
assume that we can get money from our bank at midnight or at any airport in a foreign country. So, what is the true
value that you place on many of the IT services provided when they are not there when you most need them?
Copyright © 2008 The Trends in IT Value report is protected by copyright and is the sole property of The Standish Group International, Incorporated. It may not under any
12 circumstances be retransmitted in any form, repackaged in any way, or resold through any media. All rights reserved.